What Is Health Insurance That Is “ERISA Compliant?”
With the Combined Appropriations Act of 2021, compliance with ERISA is now a Fiduciary duty for private employers who provide health benefits to their employee members.
This summary first hit these internets in an earlier post. But it’s open enrollment! So for reference, here it is:
Employers paying for health insurance is tax exempt. You can pay people in money, or you can pay them in benefits, and when you pay them in benefits you don’t have to pay taxes. In order to make this legal according to the IRS, those benefits have to comply with regulations from a series of laws:
First, meet ERISA (The Employee Retirement and Security Act of 1974). The crucial thing to understand about this law is that it’s both employment law and tax law in one:
It sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.
What minimum standards you ask? Great question! It turns out that as it applies to health plans, the most important rules for minimum standards in an ERISA-covered health plan are the following, thanks to the Affordable Care Act (ACA):
The Affordable Care Act (ACA) requires … [that plans] ensure a sufficient choice of providers and provide information to enrollees and prospective enrollees on the availability of in-network and out-of-network providers.
This is to say the coverage must be adequate. It can’t be theoretical coverage, it has to actually cover the care people might need. This, although obvious, turns out to be non-trivial. Federal oversight of adequacy returns in 2023. This includes quantitative measurements (thanks Kaiser Family Foundation!):
Time/distance standards – This type of standard is used to determine whether participating providers are geographically accessible.
A.k.a it has to be close enough to your house. Further:
Minimum number of providers – Another standard establishes minimum provider-to-enrollee ratios.
There have to be a minimum number of providers for your problem. Now this minimum varies from locality to locality, but the minimum requirement is unlikely to be none whatsoever, which is the risk that we’re talking about in some mental health conditions.
Also, the maximum wait time matters. That is another requirement. Behavioral health has its own specific limits here:
Imagine what happens to wait times when doctors start fleeing your state because they can’t get malpractice insurance thanks to your regulatory regime? Some stuff that lays deep in the weeds also includes:
Essential community providers – In addition to other network standards, … [plans need to] contract with a minimum number of available essential community providers (ECP) in their service area. These include community health clinics, Ryan White providers, and other specified providers that serve predominately low-income and medically underserved individuals.
In 2022 the No Surprises Act added the following requirements:
The No Surprises Act requires all private health plans …to maintain accurate provider directories and requires providers to regularly update plans about any changes in their information. Plans must verify and update directories at least every 90 days and, on an ongoing basis, post any changes within 2 business days.
Suffice it to say that the reason that law was passed is not because all of the current provider directories are completely accurate and totally satisfactory. They are not. This is a big deal.
Fiduciary Roles All Around
The term fiduciary has the following definition: The ERISA law was initially a big deal because it required fiduciary duties for retirement plans. Retirement plans include money, and the requirement for plans to act as fiduciaries for their members made sense so they wouldn’t be ripped off with dubious investments that benefited only the person making the recommendation. The language around the fiduciary role of brokers and plan sponsors under ERISA that is now the law as of the combined appropriations act of 2021, and the language is basically copied from that same law as it applies to retirement plans. As you can probably guess, the reason this needed to be put into the law is not because of the rampant freelance fiduciary duty assumption that was happening in the broker industry. It was very much the opposite. Brokers were for years allowed to take kickbacks. These kickbacks were paid by major payers like Blue Cross, UHC, and others, to sell their plans. And for some reason, we allowed this. Brokers sold plans in their interest and not in the interest of plan members.
That is now, to be very very very firm about it, not legal. However, unlike the relatively simple retirement plans (See what I did there? I refer to retirement plans as simple for effect.) benefits are complicated, as we can see in this website on Fiduciary Requirements. As we have seen above, the requirements have been laid out in a form that could be called clear. If you were a lying liar. More accurately, the standards would be called unbelievably complex to demonstrate despite the relative simplicity of the language and the clarity of intent. We can summarize what is necessary for a sufficient health plan under ERISA and it’s subsequent addenda (HITECH, MACRA, ACA, CA 2020, etc):
Minimum number of providers
Maximum wait time
Essential community providers
Up to date provider directory
Also, to be clear, It’s a big deal to violate ERISA.
The maximum criminal penalties for ERISA violations include up to 10 years in jail and fines of up to $100,000. Companies charged with ERISA violations can face criminal fines of up to $500,000, in addition to any civil liability.
And this, dear reader, is why we can’t have nice things…
—O. Scott Muir, M.D.